Government sources have indicated there are no plans to charge VAT on domestic water charges.

It has been reported that bodies such as schools, hospitals and voluntary groups will have to pay VAT on their water bills.

However, no final decision has been made on whether services provided by Irish Water will be subject to VAT.

As a result of an EU derogation, local authorities are exempt from charging taxes for providing water.

But Irish Water will take over that responsibility next year.

As a private company, it is expected that it will be obliged to impose VAT on its services.

In a statement to RTÉ News, a spokesperson for the Department of Environment said work was still under way on the "structure of Irish Water, its financial model and the treatment of its function for taxation".

The department said the outcome of that work will determine the company's VAT treatment.

"In all decisions made on water charges, Minister Phil Hogan is working to ensure charges are fair and equitable for everyone, and that consumers are protected," the department said.

Irish Water said any charging of VAT would be a policy decision for the Government.

Domestic users are currently charged a reduced VAT rate of 13.5% for services, including heating oil, gas and electricity.